VLCC-owned Ustraa reports Rs 50 Cr loss with flat revenue in FY24

Men’s grooming startup Ustraa was acquired by personal care brand VLCC through a share swap and secondary buyout in the first quarter of FY24. However, under the larger group, Ustraa experienced a slight decline in revenue along with an increase in losses.

Ustraa recorded a 2.94% decline in its revenue to Rs 94.02 crore in FY24 from Rs 96.87 crore in FY23, according to its annual financial report with the Registrar of Companies. This marginal decrease indicates that it faced challenges in maintaining growth in a competitive market.

Ustraa’s 95.08% of total revenue came from the sale of products, which saw a 5.1% decline compared to the previous year. The company also gained Rs 4.7 crore from other sources taking the total income to Rs 94.27 crore in the last fiscal year.

On the expenses side, the largest component was the cost of materials, which surged by 63.16% to reach Rs 60.4 crore. Employee benefit expenses saw a decline of 17.5% to Rs 20.94 crore. Advertisement expenses saw a significant reduction by 64.46% to Rs 17.09 crore. In contrast, the commission's costs rose by 43.82% to Rs 10.93 crore. With miscellaneous expenses, the total expenditure of Ustraa stood at Rs 144.6 crore, a 5.11% jump from Rs 137.57 crore in FY23.

As a result, Ustraa recorded a 25.27% surge in losses to Rs 50.32 crore for FY24 from Rs 40.17 crore loss in FY23

The company's ROCE and EBITDA Margin stood at 284.01% and -51.16% respectively. On a unit basis, the company spent Rs 1.54 to earn a rupee of operating revenue in FY24.

The cash and cash equivalents for Ustraa as of FY24 was recorded at Rs 6.89 crore, compared to Rs 1.17 crore in FY23. No other significant bank balances apart from the cash and cash equivalents were reported for FY24 and the trade receivables for Ustraa was Rs 7.46 crore in FY24.

Founded in 2015, Ustraa offers products such as fragrances, hair care, face care, and beard care. Following its acquisition, the company's founders, Rahul Anand and Rajat Tuli, continued to work with the brand while also leading VLCC's D2C initiatives.

Before the acquisition, Ustraa had raised over $10 million from investors, including Info Edge, Wipro, and IIFL, among others. The brand directly competes with Beardo, The Man Company, and Bombay Shaving Company. Notably, all these companies are operating at a loss and have either become part of a larger group or sold a significant stake to a major corporation.

Bombay Shaving Company registered Rs 182 crore in revenue for FY23 and aims to achieve a topline of Rs 260-280 crore in FY24. Beardo saw a 12.2% increase in its FY23 revenue to Rs 106.6 crore, while The Man Company recorded Rs 115 crore in revenue for FY23. Their audited FY24 results are yet to be released.

So far, the Ustraa acquisition seems to be following a predictable pattern of a cut in manpower and advertising costs, and topline stagnation with worsening bottom line. That is nothing odd simply because it is almost a template when a firm is acquired for these events to follow, as acquirers ‘clean up’ legacy issues to try and start on a clean slate by the next financial year. The question is, will Ustraa survive the changes to deliver in the next financial year? Looking at the peer group, while profitability remains a challenge for all, topline growth should not be as difficult, especially if VLCC did the acquisition with a clear plan to infuse funds at a later stage. Where things get really sticky is when the parent firm runs into troubles of its own.